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S&P Downgrades AMC Entertainment, Calling New Debt Swap “Tantamount To Default”

Jill Goldsmith
·2-min read

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S&P Global Ratings has downgraded shares of theater chain AMC Entertainment after the company announced plans for a debt exchange offer that the agency sees as “distressed.” If completed, S&P said, the move — announced in an SEC filing – would be “tantamount to a default” because noteholders will likely receive less than they were promised.

AMC is trying to lower its debt burden, which has proven a severe liability since it was forced to close theaters and suspend operations in the face of the COVID-19 pandemic. It’s basically offering investors a swap that requires them to take a cut of 50% of face value on existing debt.

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The rating on AMC was lowered to ‘CC.’ S&P also placed its ‘C’ rating on AMC’s subordinated notes on so-called ‘CreditWatch negative’ because it said it would lower the rating to ‘D’ if the proposed exchange is completed.

AMC announced plans to launch an exchange offer for four sets of subordinated notes with new notes. Three of the sets, which are dollar denominated, are trading at deeply distressed levels in the range of 26 to 27 cents on the dollar. A Bloomberg analyst said the exchange could potentially replace about $2.3 billion of subordinated debt with $1.2 billion of new secured debt.

If noteholders opt to accept the exchange offer before June 16, they will receive around $520 to $530 in new secured notes for every $1,000 in existing notes. This amount falls closer to $500 after the early exchange date, and the final exchange offer expires June 30.

While unlikely, the firm said, it could raise AMC’s credit rating if the proposed exchange offer is not completed and the company establishes a clear plan to avoid any future debt restructuring.

AMC Entertainment, which announced massive preliminary for the first quarter earlier Wednesday, cast doubt on its ability to continue as a going concern for a “reasonable period of time” as it struggles to meet its debt obligations.

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